The Innovator’s Dilemma by Clayton Christensen

The Innovator’s dilemma provides an excellent explanation on how it’s hard for well-run companies to sustain their success. It may sound like a contradiction, but if a company only listens to their existing customers and improves their product to impress only them, this could lead to failure.
The secret to overcoming this is by tapping into disruptive innovation. Disruptive innovation involves developing a product for a smaller niche market to grow the overall company in the long run.

Numerous companies have fallen victim to the effects of disruptive technology. These include Nokia, Kodak, and Blockbuster to name just a few.

The examples given by the author mainly revolve around the disk drive industry. Though other industries where disruptive technologies can unsettle big companies (such as the automobile and retail industry) are mentioned too.

Here are the main takeaways from the book.

Sustaining vs Disruptive

Companies with new ideas for their product should make the distinction of whether their idea is a sustaining innovation, or a disruptive innovation.

A sustaining innovation is one where the innovation improves upon the previous product from the perspective of existing customers. This improvement in performance is based on the feedback received from them about their current product. Such innovations may involve making the product faster, smaller, with a larger capacity etc.

A disruptive innovation involves a product that to existing customers is lower in value than the previous product, but is better in other ways that can appeal to another market.

The difference is that disruptive innovations will better serve the needs of customers in the future. Essentially the ‘Innovator’s Dilemma’ is whether a company should deliver what their current customers want now, or put resources into the products that will provide for tomorrow’s markets.

Don’t Always Listen to Your Customers

A lot of well-performing companies tend to dismiss ideas that their customers don’t want. This leaves them exposed against any new wave of disruptive technology.

Losing out on an opportunity to pursue disruptive innovation can be damaging to a company. Especially if another competitor picks up on the technology and gains a competitive advantage. This could result in the competitor gaining the company’s customers and market share.

When looking at ideas for new projects that the business could explore, do not necessarily go with the project that the leading customers want. Sustaining innovation only leads to short-term profits.

On the other hand, a competitor with a disruptive innovation may only be valued by a niche market after some trial and error. But this product has the potential to improve and give more value to more customers.

One example of a company focusing too much on sustainable technology is Kodak. Once the leading photographic film company, Kodak failed to adequately embrace digital photography by choosing to protect its market share in film photography. As a result, they went down so far as filing for bankruptcy in 2012.

Start a Spin-Off Organization

The alternative to developing sustaining technology is to start a spin-off organization or a new isolated department for exploring a disruptive innovation.

There is always a chance that the market of a disruptive innovation does not exist. To counter this, the company should go on a learning journey to correctly identify the opportunity. This involves finding people who like the new product and learning about how they use it.

The spin-off organization then purely focuses on developing a product to cater to the needs of the niche market. Resources of the original company may not be allocated in such a way that would be suitable for this niche market. Therefore, this new organization should be independent.

In the short-term, creating this new organization may not result in the same profits had they only focused on keeping their current customers happy. However, trading this in for long-term growth will make the project worth it.

Rather than creating an entirely new organization, the company could also acquire a small company and develop the disruptive technology through it.

The Bottom Line

The main takeaway from the book for entrepreneurs is to always keep an eye out for opportunities of disruptive innovation. Do not fall into the trap of focusing too much on the current needs of customers. Think long-term about their future needs.

Investing in research and development will be pointless if the only ideas executed are those in sustaining technology. To grow and be successful in the long run, look to create new markets with disruptive technology.

The book also gives hope to new startups who can start with a small niche market. They have the ability to iteratively develop the performance of their product over time. As their product won’t pose a threat to larger companies, they can afford to develop their technologies through trial and error.

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